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No seat at the table: The invisible victims of Detroit’s bankruptcy

America Tonight’s Azmat Khan reveals the forgotten creditors who stand to become casualties of the city of Detroit twice over, through no fault of their own and with little means to do anything about it

1.Intro

DETROIT — Last July, personal injury lawyer Leonard Miller was on his way to pick up an important check.

The payment, nearly $3.5 million in judgments and settlements, was the outcome of a hard-fought battle with the city of Detroit on behalf of his client, Jessie Payne.

In 2012, Payne, 70 at the time, was on her way to a doctor appointment when a city bus ran her over. The brutal accident, which was captured on security footage from a nearby mall, "de-gloved" her legs, splitting skin from body tissue. Before passing out, Payne remembers looking down.

"It looked like maggots was crawling in my leg," she said.

Doctors used painful grafting to take skin from Jessie Payne’s thighs and apply it to her legs. Jessie Payne

When she woke up, she was in the hospital, where she would remain for the next year, defying doctors' initial prognosis that she might not live, let alone keep her legs.

Miller took on Payne's case, winning key judgments and settlements. But halfway to City Hall that day in July, he got a call to turn around. There would be no payout.

That week Detroit filed for bankruptcy — the largest municipal filing in United States history — and Payne's case officially stopped in its tracks. So did more than 500 other lawsuits, some with judgments and others as yet unresolved, filed by ordinary citizens with grievances against the city.

Like pensioners and bondholders, these tort claimants are unsecured creditors who can walk away from the bankruptcy with only a small fraction of what they are owed as the city seeks to resolve its mammoth debt. But unlike pensioners and bondholders, they have been excluded from the process, given no seat at the table in the high-stakes negotiations over Detroit's bankruptcy or the plan that has them taking a staggering 80 percent cut.

"America Tonight" has been investigating their overlooked stories and whether, in a bankruptcy as unprecedented and complicated as Detroit's, some creditors will have to suffer deeper losses than others.

2.A decade lost

In 2000, 26-year-old Dwayne Provience was driving home from his sister's house with his girlfriend, Nikita Kelly, when he was pulled over by Detroit police. He thought it was a simple traffic stop, until he looked in his rearview mirror and saw officers jumping out of the car, guns drawn.

Provience was surprised to learn that he had been accused of murdering a local drug dealer named Rene Hunter.

"I didn't know nothing about Rene Hunter. Never met him before in my life, so I just thought this was all a big mistake," he recalled.

Larry Wiley, the prosecution’s only witness, was a homeless man who did handiwork in Dwayne Provience’s neighborhood. Wiley accused Provience three months after the murder, after police arrested him for a break-in.America Tonight

Behind the accusation was Larry Wiley, a homeless man who had been to jail five times. When he was picked up for a break-in three months after Hunter's murder, Wiley told police he witnessed Provience commit the crime.

"I just thought this was going to get cleared up in about a day or two," Provience said. But it didn't. The case went to trial, with Wiley as the prosecution's only witness.

Wiley's testimony — though inconsistent — was enough for a jury to find Provience guilty of second-degree murder. A father of three who had never been to prison before, he was sentenced to 32 to 62 years.

Provience was sent to prison upstate, a four-hour drive for his family in Detroit. His eldest son was 6, his daughter was 5, and his newborn son was only 2 months old. The times they were able to visit him were some of Provience's best. But when they left, it all came crashing down.

"When they had to leave and they looked at me, wondering why I couldn't leave with them, it tore me up inside," he said.

With decades of prison ahead of him, Provience feared his young children would have children of their own by the time he got out.Leisa Thompson Photography

In prison, Provience earned his GED, became certified in custodial maintenance and completed courses in subjects like decontamination. He worked out often, finding that lifting weights helped him physically and emotionally. At the same time, he continued to appeal his case on his own.

Every appeal he made was denied, but in early 2009, eight years into his sentence, Provience's luck changed.

In a matter of months, the clinic’s law students uncovered a barrage of damning evidence that revealed wrongdoing and cover-ups from the very beginning of the Hunter murder investigation. The clinic also tracked down Wiley, who said he was dying of cancer and wanted to set the record straight.

In a video recorded by the clinic, Wiley was asked if he could explain what happened on March 24, 2000, the date of Hunter's murder. "No, I couldn't," he replied. "I wasn't there." He also made another startling charge: He said he was coached by the Detroit police officer leading the homicide investigation.

Wiley's about-face was significant, but the real smoking gun was the police progress notes that detailed who the police really suspected had killed Hunter: a family-run drug gang.

These notes were never shared with Provience's defense team at trial. His civil attorney, Wolfgang Mueller, said the police didn't share the notes with the prosecution either.

"Frankly, if the prosecutor had seen it, the prosecutor would have dismissed the case. That's how powerful that was," Mueller explained.

The suppression of the progress notes alone was enough for a judge to throw out Provience's conviction in November 2009.

In 2009, Provience was released. Nearly a decade later, the city he returned to was completely different from the Detroit he remembered.Leisa Thompson Photography

After nearly a decade in prison, Provience was free.

While he was grateful for his new life out of jail, there was one thing Provience still wanted.

"I never got an apology from anyone," he said. "Not even a prosecutor, not even from the Detroit Police Department. No one. That was like a slap in the face."

He didn't get damages either. Michigan is one of 21 states without automatic compensation for wrongful incarceration. So Provience hired Mueller and filed a civil rights claim against the city of Detroit and the police officer who led the homicide investigation.

In the summer of 2011, both parties agreed to a special case evaluation in an effort to reach a settlement.

"We had agreed, between the city's lawyer and myself, to have three professionals hear the case and place a value on the case that hopefully will resolve it," Mueller said. "That panel, with a collective experience of probably 70 years doing nothing but civil rights cases, decided the case was worth 5 million dollars."

The city rejected the amount and tried but failed to get the case dismissed.

"We got all the way to the 6th Circuit Appellate Court in Cincinnati, and we won that," Provience said. "We were on the verge of either settling or going further, taking it to trial, so we was, like, right there at the goal line."

3.Uncharted territory

Though few saw it coming, Detroit's bankruptcy was years in the making, the result of decades of mismanagement, poor investments, an exodus of residents and declining tax revenues. It was also, many argue, a consequence of the city's pension funds and the borrowing binge it went on to sustain them.

Estimates of Detroit's debt and unfunded liabilities range, but the man tasked with coming up with a consensual plan to resolve that debt, emergency manager Kevyn Orr, puts the number close to a staggering $18 billion.

The task of coming up with a plan for the largest municipal bankruptcy in U.S. history falls to Kevyn Orr, Detroit's emergency manager.University of Michigan

It was Orr's decision to file for bankruptcy last July, and he has until the fall to come up with a plan enough involved parties can agree on before he could be removed from the position.

The city is in mediation with pensioner and bondholder groups to hammer out a plan of adjustment that makes strategic cuts that affect the city's unsecured creditors. And under tentative settlements, subject to approval by U.S. bankruptcy court Judge Steven Rhodes, certain creditors stand to lose much more than others.

If they accept the plan, police officers and firefighters could get 100 percent of their pensions. After eliminating cost of living adjustments, civilian employees could get 95.5 percent. And in exchange for signing on to the plan, certain bond insurers will get 74 percent of what they are owed.

But as the city's plan stands now, creditors with lawsuits against the city could get as little as 20 percent of judgments that they have already been awarded or would get through the bankruptcy mediation process.

These lawsuits cover everything from police abuse and wrongful death to employment discrimination and personal injury.

At least 90 of them are civil rights claims.

"These are folks who are often in disfavored classes and categories, people who've been in prison, like Mr. Provience," said Bill Goodman, a lawyer who represents four civil rights claims affected by the bankruptcy.

"The system is in favor of the powerful and the wealthy and to some extent the labor unions. And there's little pressure to help regular, ordinary individuals whose rights have been violated."

Unlike every other class of creditors, tort claimants don't have their own committee to represent their interests in the bankruptcy. That leaves them with only their lawyers, who aren't bankruptcy experts, to fight for them.

"Right now we have pieces of paper essentially that need to be converted into monetary damages for Jessie," explained Mark Bernstein, who heads the firm representing Payne. "It's uncharted territory for virtually everybody involved in this."

These suits won't be resolved in court, at least not at first; they'll be determined through a process the city chose known as alternative dispute resolution (ADR).

Through the mediation process, whether a case has a fixed amount attached to it, like Payne's, or not, like Provience's, each suit will have a case evaluation and binding arbitration with several mediators. If arbitration ultimately fails, the case will go into litigation. Whatever the final outcome, each tort creditor, as the plan stands now, would only get about 20 percent of the decided amount.

For Payne, that means going through the ADR process and potentially only getting about $600,000 of the $3.5 million she was owed.

Bernstein believes it's inherently unfair.

"Jessie Payne is not a sophisticated Wall Street bank, or large bondholder," he said. "She's a woman who was walking in a parking lot, got hit by a city bus and deserves to be paid for it."

Other creditors groups, like banks, bondholders and pension funds, have all been blamed for contributing to Detroit's decline, but tort creditors argue they didn't do anything to harm the city; the city harmed them.

Despite repeated requests, the city's legal representation at the Jones Day law firm did not comment on the cases.

4.The ‘cram down’

AFSCME Council 25 is Detroit's biggest employee union, and it has a seat on the official committee of retirees.

"Not only are we at the table, we've got a voice in the community," said Albert Garrett, the group's president. He believes there's a calculated reason the city is giving some unsecured creditors a better deal than others.

Albert Garrett, president of Detroit's biggest employee union, said tort creditors should be joining the unions in demonstrations against the bankruptcy, "because we're not just talking about retirees. We're talking about the whole question of fairness of bankruptcy."America Tonight

"It's every man for himself in this thing," he said. "What the bankruptcy process sets up is, they need one group of these creditors to buy the deal, and so I'll give you something a little different than the other person, and hopefully you will buy [in to] this because you're getting treated better than this next group."

In bankruptcy, getting one key creditor class on board sets the stage for a so-called cram down, which would allow Rhodes to approve a forcible restructuring plan over the objections of other creditors.

In April, the city reached key agreements with police and firefighters that are more favorable than previous offers it had made, as well as major settlements with the banks UBS and Bank of America Merrill Lynch — paving the way for a cram down.

"The message is that now is the time to negotiate," Rhodes said after approving the settlement with the two banks.

But it's unlikely that tort creditors will have the opportunity to negotiate a better recovery rate in time.

Despite repeated requests, Orr would not comment for this story. Though he has not spoken publicly about the disparate percentage that tort creditors are getting, he acknowledged that "reaching a consensual resolution and getting someone to understand that they have to give up expectations … that's a difficult call."

To those familiar with bankruptcy, it's no surprise that tort creditors are losing out.

"Bankruptcy recognizes this one fact: You have a lot of creditors too small to justify the time to be involved in the process," said Jared Ellias, a lecturer at Stanford University Law School.

Even though an individual tort creditor like Payne has a bigger claim in dollars than an individual pensioner does, the sum of tort claims is "peanuts" compared with that of pensioners, he explains, and the city doesn't gain anything from trying to court them with a better deal.

Because each tort claim differs vastly from the next, it's also more difficult for tort creditors to act in unison.

They also have fewer resources at their disposal. Many of them are low-income and pay their lawyers only if they receive compensation.

"Unfortunately, what this means is that people like this can get run over," Ellias added.

5.Run over

Jessie Payne doesn’t get around as easily now, and so she doesn’t see her family — her four children and her dozens of grandchildren and great grandchildren spread out across the Motor City — as often as she used to.America Tonight

Now 72, Jessie Payne lives in a group rehabilitation home and undergoes physical therapy five days a week. Though she's in constant pain, she's grateful.

"I'm lucky to have legs. They could have took 'em both," she said. "God has the last word. If it's my time, God was going to take me."

Payne can't wait too long for her compensation.

"This is a critically important period of time in her recovery," Bernstein said. "[The bankruptcy] puts a big obstacle in the way of her getting the care that she needs for rehabilitation."

Dwayne Provience with his 2-year-old son, Nicholas.America Tonight

Dwayne Provience's story also has another costly twist.

When he was sent to prison, the state mistakenly continued to bill him for child support.

"The only time they cut it off, I think, it was like eight and a half years [into] when I was in prison," he said. "At that time, I was almost $100,000 in debt in child support."

But under Michigan law, if Provience gets any compensation, he will still have to pay that amount. So his only hope is to get what he feels the city owes him.

His message for Detroit's emergency manager is a simple one.

"I know he's doing a job that he has to do to get this city back up and viable, and I applaud him for that," he said. "But if I could speak to Kevyn Orr, I would just let him know, 'Give us a little more meat on the bone, so we can feel vindicated for what we went through.'"

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